What is a Hostile Takeover? An Overview of Acquisitions, Mergers, and Takeovers
When large companies explore ways to expand, the term “hostile takeover” is one of the most discussed options. Hostile takeovers occur when a suitor purchases a majority of shares of a target company in an attempt to acquire the company, without the approval of the target company’s board or management. But what is a hostile takeover, exactly?
In this article, we’ll explain the definition of a hostile takeover, which types exist, the pros and cons associated with them, and some examples of hostile takeovers throughout history.
What is a Hostile Takeover?
A hostile takeover, also known as a hostile acquisition, is when one company, the bidder, makes a tender offer to the shareholders of a target company. This offer is for a proportion of the shares in the target company. The bidder may even offer a premium above the market price of the target’s shares. If the offer has sufficient acceptance from shareholders, the bidder acquires more than 50% of the target company’s shares, and can serve to control the company.
In a hostile takeover, the management of the target company may not be informed of the takeover bid, or may reject the tender offer. Hostile takeovers are one of several options companies can use to expand beyond their current boundaries. Though there have been numerous hostile takeovers attempted, very few have been successful.
Types of Takeovers
There are several different types of takeovers, with the most common being hostile takeovers, favorable takeovers, and reverse takeovers.
Hostile Takeovers: As we’ve discussed, a hostile takeover is an effort by one company to acquire or gain control of another company, without the approval of the target company’s board or management. Hostile takeover attempts often involve aggressive tactics, and can result in lengthy legal disputes.
Favorable Takeovers: In a favorable takeover, the target company’s board and management are in agreement with the takeover bid. A favorable takeover usually results from discussions between the companies leading up to the tender offer. An acquirer can also make a tender offer to various shareholders of the target company at different prices.
Reverse Takeovers: A reverse takeover is a type of merger that allows a private company to become publicly listed on the stock exchange. The process involves an acquisition of a public company with a free-floating share capital. The private company purchases the majority of the shares of the public company, then the private company’s shareholders become the majority owners of the public company.
The Pros and Cons of Hostile Takeovers
When considering a hostile takeover, both the bidder and the target company should weigh the pros and cons.
Pros of Hostile Takeovers:
-Encourages competition in the market: By allowing companies to acquire other companies without board approval, hostile takeovers encourages competition in the market, resulting in more competitive prices for consumers.
-Time-efficient: Due to the competitive nature of hostile takeovers, the process is often quicker than negotiating a typical merger or acquisition.
-Increase in shareholder value: Share prices of companies often rise in the anticipation of a hostile takeover, thus increasing shareholder value.
Cons of Hostile Takeovers:
-Potential bad publicity: Hostile takeovers are often controversial and can lead to damaging publicity for the bidding company, particularly if the takeover is unsuccessful.
-Increased legal costs: Hostile takeovers can be a costly and drawn-out process, as the target company will often use legal measures to resist the takeover.
-Conflict of interest: Hostile takeovers can also create conflict between companies, potentially impacting the relations of future business partnerships between the two companies.
Notable Examples of Hostile Takeovers
The history of hostile takeovers is checkered and has changed the face of some of the world’s biggest companies, with some of the most famous examples occurring in recent decades.
-Kodak vs Fujifilm: In 2005, Fujifilm, a Japanese photographic and imaging firm, launched a hostile takeover bid for US-based firm Eastman Kodak. Despite the $5.7 billion offer, Kodak rejected the bid and the takeover eventually failed.
-Reeson vs Foxconn: Taiwanese electronics manufacturer Foxconn launched a hostile takeover of Japanese tech company Reeson in 2005. The offer was rejected by Reeson, but Foxconn persisted and upped the bid price to $7 billion before finally being successful.
-Barrick vs Newmont: In 2019, Canadian firm Barrick Gold made an unsuccessful hostile takeover bid for Newmont Mining Corporation, a fellow gold miner. The estimated merger between the two companies would have created the world’s biggest gold miner.
Hostile takeovers are increasingly becoming an important option for larger companies who are looking to expand and grow but are unable to negotiate a more favorable merger or acquisition deal. When considering a hostile takeover, it’s important for both the bidder and target to weigh the pros and cons and carefully assess the implications for both companies. Hostile takeovers can often be lengthy and costly, but some of the most success takeover attempts have resulted in some of the world’s largest conglomerates.
